Minister's or military housing allowance. If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. You do not have to reduce your deductions by your nontaxable allowance.
You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions.
You received assistance under:
A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or
An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state.
You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home.
Deductible Real Estate Taxes
You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. If you own a cooperative apartment, see Special Rules for Cooperatives, later.
Refund or rebate of real estate taxes. If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income.
Deductible Mortgage Interest
To be deductible, the interest you pay must be on a loan secured by your main home or a second home. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan.
Late payment charge on mortgage payment. You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan.
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